China iron and steel industry: Development prospects for 2013

1

Analysis on China Iron and Steel Industry in 2012

& Development Prospects for 2013

2

Characteristics of China Steel Industry in 2012

Steel Demand Slows Down while Steel Output Rises Rapidly

Steel Prices Eye Obvious Dip while Steel Production Witnesses Continuous Rise

Steelmakers are in Red due to Decreasing Profits

3

China GDP growth demonstrates a 7-quarter continuous decline

-20%

-10%

0%

10%

20%

30%

40%

50%

2004

-Q1

2004

-Q4

2005

-Q3

2006

-Q2

2007

-Q1

2007

-Q4

2008

-Q3

2009

-Q2

2010

-Q1

2010

-Q4

2011

-Q3

2012

-Q2

0%

2%

4%

6%

8%

10%

12%

14%

China Crude Steel Output Growth RateChina GDP Growth Rate

China’s GDP Growth Slows Down (I)

4

Fixed asset investment growth rate drops obviously in 2012;

investment on real estate demonstrates a big dip.

0%

10%

20%

30%

40%

50%

60%

Feb

/09

Apr

/09

Jun/

09A

ug/0

9O

ct/0

9D

ec/0

9F

eb/1

0A

pr/1

0Ju

n/10

Aug

/10

Oct

/10

Dec

/10

Feb

/11

Apr

/11

Jun/

11A

ug/1

1O

ct/1

1D

ec/1

1F

eb/1

2A

pr/1

2Ju

n/12

Aug

/12

China Fixed Asset Investment Growth

China Real Estate Investment Growth

China’s GDP Growth Slows Down (I)

5

In 2012, investment on railway and highway drops significantly, dragging down steel demands.

China’s Steel Downstream Industries Growth Cools Do wn (I)

-35

-15

5

25

45

65

85

0

200

400

600

800

1000

1200

1400

China Railway & Highway Investments in 2011/2012

Railway Investment (RMB Bln)

Highway Investment (RMB Bln)

Railway Growth (%)

Highway Growth (%)

6

Rapid growth of automobile output slows down.

1000

1200

1400

1600

1800

2000

Jan/

10

Apr

/10

Jul/1

0

Oct

/10

Jan/

11

Apr

/11

Jul/1

1

Oct

/11

Jan/

12

Apr

/12

Jul/1

2

China Automobile Output

China Automobile Sales

'000 units

0

10

20

30

40

50

60

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012Jan/Sep

China Automobile Output & Growth in 2011/2012

Production(Mln) YoY(%)

China’s Steel Downstream Industries Growth Cools Do wn (II)

7

Growth rate of household appliance industry experiences significant decrease

-40%-20%

0%20%40%

60%80%

100%120%140%

160%180%

Feb

/11

Apr

/11

Jun/

11

Aug

/11

Oct

/11

Dec

/11

Feb

/12

Apr

/12

Jun/

12

Aug

/12

Output Growth of Washing Machine

Output Growth of Refrigerator

Output Growth of Freezer

Output Growth of Air Conditioner

China’s Steel Downstream Industries Growth Cools Do wn (III)

8

Major Household Appliance Products Output

Household

Appliance

Products

Jan – Sept 2012 Jan – Sept 2011Growth Rate

DifferenceOutput

(‘000 Unit)

Growth Rate

（%）

Output

(‘000 Unit)

Growth Rate

（%）

Washing

Machine48792 1.4 4825.7 17.0 -15.6

Refrigerator 64542 -4.6 6826.6 18.2 -22.8

Freezer 14221 1.8 1405.3 10.4 -8.6

Air Conditioner 10719 0.3 11295.6 32.2 -31.9

China’s Steel Downstream Industries Growth Cools Do wn (III)

9

Three major indicators of shipbuilding industry decreases rapidly from Jan to Sep 2012.

-60%

-40%

-20%

0%

20%

40%

60%

Feb/

11

May

/11

Aug

/11

Nov

/11

Feb/

12

May

/12

Aug

/12

Growth of Shipbuilding Output

Growth of New Shipbuilding Orders

Growth of New Orders on Hand

China’s Steel Downstream Industries Growth Cools Do wn (IV)

In the first nine months of 2012, China

completed a 42.58 million dead weight ton of

shipbuilding volume, down by 18.5% YoY. New

orders hit 15.41 million dead weight ton,

decreasing by 46.9% from one year ago. Up to

late September, orders at hand stand at 120.9

million dead weight ton.

From January to August, China key shipbuilding

companies produced 7.325 million tons of

shipbuilding products, down by 33.0% YoY.

10

Growth of Foreign Trade Witnesses Obvious Decline i n 2012 (I)

In Jan-Sep 2012, mechanical and electrical products export hit US$854.83 billion, up by 8.3% YoY;

In Jan-Sep 2011, mechanical and electrical products export hit US$789.33 billion, up by 18.2% YoY.

Jan-Sept 2012 Jan-Sept 2011Growth

Rate

DifferenceVolumeYoY

Volume YoY

Import & Export 28424.7 6.2% 26771.3 24.6% -18.4%

Export 14953.9 7.4% 13920.5 22.7% -15.3%

Import 13470.8 4.8% 12850.9 26.7% -21.9%

11

In Jan-Sep 2012, China steel export up 10.2% YoY while import down 12.0% YoY.

China Steel Export by Regions in Jan-Sep 2012

7720

27802070 1840 1790

-3,2

-35,4

51,5

63,1

29,6

-60

-40

-20

0

20

40

60

80

1000

2000

3000

4000

5000

6000

7000

8000

9000

S.KoreaS.KoreaS.KoreaS.Korea EU27EU27EU27EU27 ThailandThailandThailandThailand SingaporeSingaporeSingaporeSingapore VietnamVietnamVietnamVietnam

Export QTY('000t) Growth Rate(%)

Growth of Foreign Trade Witnesses Obvious Decline i n 2012 (II)

12

Net crude steel export accounts for 5.9% of total crude steel production in the first nine months

of 2012

3473

5489

4764

2730

34793189

8,3

11,2

9,5

0,5

4,3

5,1

5,9

0

2

4

6

8

10

12

2000

3000

4000

5000

6000

2006 2008 2010 2012 Jan-Sept

Net Export Scale for China Crude Steel

Net Exp（10Tsd T）

Ratio（%）

Growth of Foreign Trade Witnesses Obvious Decline i n 2012 (III)

13

Steel production capacity keeps increasing in spite of sluggish demand

Data issued from CISA indicates that China steel production capacity hit 800 million tons by

late 2010 and hit 852 million tons by 2011. It is predicted that China crude steel production

capacity will hit 900 million tons in 2012.

Crude Steel Output Capacity in 2010 & 2011 ‘000 t

2011 2010

Late 2011 New Added Net Increase Late 2012 New Added Net Increase

850000 80000 50000 800300 72580 53400

China’s Steel Production Capacity Expanding (I)

14

Since early Sept, China steel market took on upward trend after a long time decrease since last Aug.

Steel Market Price Chart from Aug 2011 to Sept 2012

Unit Aug 2011 Sept 2012 Change YoY（%）

Average Steel Price % 135.49 99.24 -35.99 -26.61

Long Product % 143.86 103.09 -40.77 -28.3

Flat Product % 130.45 95.95 -34.5 -26.4

Rebar in Shanghai RMB/T 4820 3350 -1470 -30.5

Rebar in Beijing RMB/T 5040 3280 -1760 -34.9

HRC in Shanghai RMB/T 4850 3260 -1590 -32.6

HRC in Beijing RMB/T 4820 3200 -1620 -33.6

China’s Steel Production Capacity Expanding (II)

15

Steel Output Adjustment Lags Behind Price Correction

China’s Steel Production Capacity Expanding (III)

16

Rebar production maintains at the high level

32

31,1

29,9

27,9 27,8

23,5

18,7 18,5

16,6

15,4 15,6 15,4

18,7 19,0 19,0

18,0

12,9

16,4

15,2

14,3 13,9 13,7

12,9

13,9

0

10

20

30

40

2011.Jan-Sept Jan-Nov 2012.Jan-Feb Jan-Apr Jan-Jun Jan-Aug

2012 Jan-Sept Real Estate Investment and Rebar Outp ut Coefficient (%)

Real Estate Growth

Rebar Growth (%)

China’s Steel Production Capacity Expanding (IV)

17

Steelmakers are in Red

From January to August, China steel industry achieved a profit of RMB82 billion, down by

53.4% YoY. Especially for steel melting and processing sector, profit dropped 81.1%.

Moreover, key medium and large sized steel mills lost RMB3.18 billion.

Reasons for Loss:

sluggish demands, rising production, low price and high production costs

Root Reasons for Loss:

excess production capacity & over competition

18

China Iron Ore Market in 2012

Iron Ore Supply Condition

Review on China Iron Ore Market in 2012

19

China Domestic Iron Ore Eyes Obvious Rise

3.6%

16.0%

18.9%

35.6%

38.0%

18.0%

20.7%

8.9%

21.6%

27.2%

0

20000

40000

60000

80000

100000

120000

140000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 10kt

output

YoY

China Iron Ore Supply Condition (I) Domestic Iron Ore

-5,00%

0,00%

5,00%

10,00%

15,00%

20,00%

25,00%

30,00%

35,00%

50

60

70

80

90

100

110

120

130

140

China Domestic Iron Ore Output in 2010-2012

Production (Mln T) YoY Change (%)

20

China Domestic Iron Ore Output by Provinces in 2001-2011

0

10000

20000

30000

40000

50000

60000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

unit: 10kt

Hebei Shanxi Inner Mongolia Liaoning Anhui

Fujian Shandong Sichuan Yunnan Xinjiang


21

Higher Producing Cost

Producing cost of China iron ore concentrate is high, average cost was close to US$100/t in 2011. (Fe58% below $100/t; Fe48% above $100/t, even hit $150/t)


Increasing Production Capacity

There are 66 medium and large sized iron ore projects under construction or planned to construct, with reserves over 20 billion tons, and the number is increasing. (12 projects with reserves over 10 million tons each; 16 projects with reserves over 5 million tons each; 18 projects with reserves over 1 million tons each.)

22

-Insufficient domestic iron ore supply for steelmaking;

-China iron ore import market pulled by both steelmakers and traders, leading to fluctuation in quantity and price;

-Ratio of sintering iron ore using in furnaces reached 70-95% while majority of domestic production were concentrates- fines and lumps were firmly required from overseas;

-Grades of domestic iron ore were hardly to be sustained stable by disperse deposits, exiguous mining giants as well as out-of-date mining methods and equipments

China iron ore imports jumped 6.4 times in past 10 years.

China Iron Ore Supply Condition (II) Imported Iron Ore

23

Iron ore imports up, iron ore prices down…


80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

160,0

170,0

180,0

30

35

40

45

50

55

60

65

70

China Iron Ore Imports & Price in 2010-2012

Import Volume (Mln T)

Average Price (US$/T)

24

Iron ore import from India dropped , growth mainly came from Australia, Brazil and S. Africa.

Imports form

Jan to Sep in

2012

Imports

form Jan to

Sep in 2011

YoY Change

Australia 25723.1 21461.32 19.86

Brazil 11551.43 10471.62 10.31

India 3234.93 6155.65 -47.45

S. Africa 3113.31 2643.01 17.79

Ukraine 1161.38 912.87 27.22

Canada 1100.76 827.01 33.1


25

� China Imported Iron Ore Grade is declining;

� China Blast Furnace Charged Iron Ore Grade is declining too.

58.03

57.78

56.98

56.71

2.677

2.53

2.507

2.4

2.5

2.6

2.7

56

57

58

59

2005 2006 2007 2008 2009 2010 2011 Jan-Aug,2012

t/(m3*d) %

China Blast Furnace Charged Iron Ore Grade and Utilization Coefficient


26

China Iron Ore Market Price Enters the Downward Corrections

60

100

140

180

2012

-01-

04

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-01-

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2012

-01-

31

2012

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＄/DMT

62% integrated fines 62% imported fines 58% imported fines

62% imported lumps 65% imported pellets

China Iron Ore Spot Price Index (CSI) 2012


27

China Iron Ore Market Characteristics in 2012

� In H1, average prices for 62%-Fe imported iron ore fines hit US$140.5/ton. Iron ore market witnessed obvious dip in H2 2012 with averaged price at US$114/ton by the end of October.

� Imported iron ore prices are lower than the production cost of China domestic ore. Under such circumstances, imported iron ore volume saw obvious rise.

� Steel prices drop significantly, making most steelmakers in red. Steel mills choose to cut production, leading to decreasing iron ore demands and iron ore price.

� In 2012, China steel mills and iron ore traders largely cut iron ore inventory to reduce risk. Partial coastal steelmakers keep their inventory at 3-5 days.

� Traders become more cautious of iron ore procurement and choose to increase purchase frequency.

� Iron ore trading firms’ profits dive rapidly as market price becomes more and more transparent.

� Facing decreasing iron ore prices, partial iron ore trading companies choose to break contracts.


28

Custeel firstly launched China iron ore spot price index in 2011 in order to illustrate a reasonable and fair

China iron ore spot market. More than 20 Chinese steel enterprises have applied CSI indexes as clearing

basis. CSI index has been widely recognized in the market, among which, 62%-Fe imported iron ore index,

62%-Fe domestic iron ore index, 62% imported lump index and 65%-Fe imported pellet index have been

applied in business activities.

China Iron Ore Spot Price Index (CSI)

29

China Iron Ore Spot Price Index (CSI)

� Reflecting China Spot Market rapidly——Samples of imported iron ore are selected from 10

main ports in China. Thus, CSI index can reflect demand and supply situation of China spot

market rapidly.

� Comprehensive System——Covering all iron ore products (Fines, Concentrates, Lumps and

Pellets)

� Sampling——Samples are all transaction prices. As the transaction volume of iron ore at

Chinese ports is 5,000 tons at least. Thus, samples possess large-scaled transaction.

� Chinese domestic iron ore included——To study Chinese domestic iron ore prices , help

forecasting prices for imported iron ore as Chinese domestic iron ore market exert s influence

on world iron ore spot market.

� Scientific Calculation——The calculation of CSI indexes is based on scientific data model, rather

than assessment prices or the last transaction price.

� Research Team——More than 30 staff are working in CSI index research team.

30

In spite of the same grade, lumps price is higher than the price of fines. On account of the

different demand in different period, price gaps between the two products appear to be rather

changeable. Accordingly, pricing for lumps is controversial.

50

80

110

140

170

200

20

08

-01

-02

20

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-03

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-07

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＄/DMT 62% imported fines 62% imported lumps

Price Contrast between Imported Lumps (62%)and Imported Fines (62%)

Contrast of CSI

0

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Contrast of CSI

31

From the chart, we can tell that imported iron ore prices

are higher than that of domestic iron ore when demands

are strong. When demands become sluggish, imported

iron ore prices are lower than that of domestic iron ore

products.

400

600

800

1000

1200

1400

1600

20

05

-01

-05

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-05

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-10

-12

RMB/DMT

62% imported fines 62% domestic fines

Price Difference between China Domestic Iron ore and Imported Iron Ore

-200

-100

0

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200

300

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-04

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20

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-08

-08

Price Difference between China Domestic Iron ore with Fe 62%

and Imported Iron Ore Price Index

Price Difference Chart between Imported Iron Ore Fine

with Fe 62% and Domestic Iron Ore Fine

32

Prospect for Chinese Iron Ore and Steel Industry

Prospect for Chinese Iron Ore and Steel Industry

33

I Chinese economy tends to be stable amid the sligh t slowdown. Growth of GDP is able to exceed the 7.5% of central government’s ex pectation, being forecast to

around 7.7%

Since the beginning of this year, Chinese government stuck to the operating mood of making progress

while ensuring stability confronted with the rigorous economic situation both at home and abroad.

From May on, National Development and Reform Committee (NDCR) has authorized a series of large-

scale infrastructure construction projects, especially for furthering the approval system in early

September. Meanwhile, People’s Bank of China, the central bank of China, slackened monetary policies

with two round of reduction of interest, injecting liquidity, so as to make sure that the approved

projects can obtain enough currency.

Being stimulated by the short term growth measures and policies, Chinese economic growth rate in Q1,

Q2 and Q3 separately stand at 1.5% QoQ, 2.0% QoQ and 2.2% QoQ, continuously increased.

Chinese economy may bottom out in Q3 this year, and it is expected to rebound in Q4. Growth rate

possibly will remain over 7.5% that government predicted, being estimated to hover at 7.7%.

34

II Forecast on China Steel Industry Major Indicator s in 2012

●Crude Steel production will total 720 million tonnes above, rising by 5.1% from 685 millions of

last year, with growth rate slipping by 2.4% YoY.

●Steel product export will reach about 54 million tonnes, up by 10.5% YoY,. Steel product import

will amount to 14 million tonnes , dropping by 10.1% YoY. Net export of crude steel totals 42.55

million tonnes.

●Crude apparent consumption will stay 677 million tonnes, up by 4% from that of last year, with

growth rate slipping by 2.7% YoY.

●Steel industry profit in 2012 will maintain the large decline compared to that of 2011, keeping

the same trend in the first eight months. Large & medium-sized steel companies are hopefully to

turn from deficits to profit in Q4 and earn a meager profit

●China iron ore import is expected to reach 737 million tonnes, rising by 7.4% YoY, with the

growth rate slipping by 3.5% YoY and addition falling by 16 million tonnes. Reasonable price for

imported iron ore fines (Fe: 62%) will fluctuate around US$100-120/tonne in Q4

35

III China Economic Development Will Enter To A New Historical Phase In 2013, National Economy Will See A Steadier Growth T han That Of 2012

China economy has grown rapidly under the policy of reform and opening up. The

contradictions in development indicate that it's unsustainable for China economy to

maintain high double-digit growth rate by focusing on investment and export consumption.

China should transform economic development mode and accomplish the economic growth

focusing on consumption and export investment . A reasonable growth rate for China

economy should be 7%-8% in the coming years. China economic development target is to

reduce consumption of resources, reduce pollution, build a society of resources saving and

harmonious relationship between man and the natural environment.

China economy will face a transition period from high speed to medium & low speed

growth in 2013 . GDP growth will stay around 8% or so. National economy ‘s steel demand

will maintain a mild growth.

36

IV China Steel Industry Development Outlook in 2013

● Forecast on Domestic and Oversea Economic Environment

Global economy continues to recover in 2013. Global economy will grow from 3.3% in 2012 to 3.6%;

US economy will drop from 2.2% to 2.1%;

Euro zone economy will rise from -0.4% to 0.2%

Japan economy will fall from 2.2% to 1.2%.

China economy will grow from 7.7% to 8.0% above

● The problems which China steel industry has faced in the past years will continue in the coming

two years. China steel industry will enter into a phase of de-capacity. Non concentrative market

structure and oversupply problem will continue to exist. It’s hard for China steel industry to see

obvious improvement in economic benefits.

● China crude steel production will see a small growth of 2-3% in 2013

● China iron ore imports will go up by 4-5% YoY in 2013.

A reasonable price for imported iron ore fines will range bound US$100-130/tonne (Fe: 62%) in 2013.

37

Helen Liu

Tel: +86 10-8419 3739E-mail: [email protected]

China iron and steel industry: Development prospects for 2013

Business

Transcript of China iron and steel industry: Development prospects for 2013